During its much-anticipated State of the Line presentation, NCCI's Chief Actuary Dennis Mealy outlined the annual numbers and cost drivers in the workers' comp system. For the first time in several years, the positives were stronger than the negatives, leading NCCI to describe the workers' comp line as "encouraging." The word used last year was "conflicted."
However, obstacles remain for workers' comp. Included are investment returns, reserve deficiencies, and inflation.
Among the factors for 2012 were:
- Combined ratio. At 109, it is a six-point decrease from 2011 and the first decline since 2006.
- Claim frequency. The 5 percent drop was the second consecutive. The frequency of claims had been a big question mark when, after 12 years of declines, it increased by an effective rate of 3.8 percent in 2010, which NCCI now sees as "clearly an aberration," according to president and CEO Steve Klingel.
- Premiums. Workers' comp premiums grew for the second consecutive year. The 9 percent increase followed 2011's 8 percent increase. Net written premium was $39.63 billion in 2011. The two years of good news for premiums came on the heels of a cumulative 27 percent decline between 2006 and 2010.
- Claim severity. The total lost time claim cost increased by roughly 2 percent in 2012. Included were a 1 percent increase in indemnity costs per lost time claim, and a 3 percent increase in the average medical cost per lost time claim.
- Investment returns. For the third consecutive year, the ratio of investment gains on insurance transactions to premium was at least 14 percent. However, that rate is not expected to continue, as expiring bonds will be replaced with new ones that have smaller returns.
- Carrier reserve deficiency. For the fifth consecutive year, NCCI estimates the reserve position for private carriers has declined. As of year-end 2012, the estimate is $13 billion, $2 billion more than the previous year, which Klingel characterized as "a concerning trend."
But NCCI officials warned of obstacles ahead.
"The workers' compensation line continues to deal with a variety of significant challenges," Mealy said. "These include poor underwriting results, low investment yields, and continued uncertainty regarding the impact of the implementation of the federal health care reform bill."
Although the combined ratio was lower, it still remains "too high," Klingel said. Also tempering the positive news for the workers' comp line were the slow employment growth, especially in construction and manufacturing, and the potential impact of the Patient Protection and Affordable Care Act in 2014.
"Keep focused," Klingel said. "Keep going."
The State of the Line was presented during NCCI's Annual Issues Symposium.
Read more at the WorkersComp Forum homepage.
June 3, 2013
Copyright 2013© LRP Publications